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The Community 
Resource Kit 



Guidance for people setting up and 
running community organisations 





www.dia.govt.nz 



Te Tari Taiwhenua 



Section 3 

Organisational structures 



THE COMMUNITY RESOURCE KIT 



Section 1 


Getting started 


Section 2 


Planning 


Section 3 


Organisational structures 


Section 4 


Governance 


Section 5 


Policies 


Section 6 


Meetings 


Section 7 


Financial management 


Section 8 


Record-keeping 


Section 9 


Raising funds 


Section 10: Employment 


Section 1 1 : Communications 


Section 12: Information technology 



CONTENTS (SECTION 3) 



1 Introduction 

Words used 



1 Initial considerations 



Characteristics of different legal structures 

Unincorporated groups 

Key features 

Rules and processes 

Advantages 

Limitations 

Umbrella groups 

Advantages 
Limitations 



7 



Formal organisational structures 

Advantages 

Benefits of incorporation 

Separate legal identity 
Perpetual succession 
Limited liability 
Choosing the right structure 



8 



Incorporated societies 

Key features 
Rules 

Minimum requirements 
Final tips on rules 
Process for setting up an incorporated society 

15 Charitable trusts 

Charitable purposes 
Key features 
Rules 

Rules checklist 



18 Other organisational structures 

Companies 

Co-operative companies 
Industrial and provident societies 
Maori land trusts 

Putea trusts 
Whanau trusts 
Ahu whenua trusts 
Whenua topu trusts 
Kai tiaki trusts 

20 Charities commission 

Functions 
Registration 

Name 

Charitable purposes 
Qualification of officers 
Tax exemptions 



22 Dissolution and winding up 

Incorporated societies 
Charitable trusts 
Companies 



23 Where to go for more information 

Online resources 
Other resources 



Introduction 

Mst community groups start with a person or a number of people informally providing a 
service or working on a specific project. From there, a group and its activities may grow 
to a point where it needs to be organised on a more formal basis. There are many options 
available, from informal unincorporated structures to common formal structures, such as 
incorporated societies and charitable trusts. 

This section provides some basic guidance and tips on a range of topics related to 
organisational structures for community groups. It looks at everything from unincorporated 
groups to incorporated societies and charitable trust boards, as well as the less common 
formal structures, such as companies and Maori land trusts. The Charities Commission and 
related topics are discussed as well as how to dissolve your organisation and liquidation. 

Words used 

There is a lot of terminology and jargon for describing the different ways community groups 
can organise themselves and it can get confusing. Throughout this section the terms 
'organisational structure' and 'legal form' are used to refer to unincorporated groups as well 
as more formal structures such as incorporated societies, charitable trusts etc. The term 
'entity' - for example 'legal entity' - is also used. 

Organisations that are registered under the Charitable Trusts Act 1 957 may be referred 
to as either 'registered' or 'incorporated' charitable trusts or societies. Here, the term 
'registered' is generally used. 

Initial considerations 

Before your group decides what sort of organisational structure will suit it best, you 
should have gone through the planning process and be clear about the group's role in 
the community, the nature of your project and how you intend to operate. Fitting the 
organisational structure around the group's activities is much better than trying to fit the 
group's activities around the organisational structure. 

You need to be clear about: 

flexibility - how much flexibility do you need as the project or service develops? 
size - will there be any limit to the size of the group? 
what the desired culture and values of the group are 

what activities the group proposes to undertake (the various legal forms have different 
restrictions on their activities while an unincorporated group will have very few) 
who will make the decisions - do you want to separate governance, management and 
ownership and have controls outside the group? 
• funding - how much is needed, from whom and for what? 
accountability - how will the group's financial performance be monitored? 
liability - who will be liable if things go wrong? 
responsibilities - management, governance and operational. 



Community Resource Kit Section 3: Organisational structures 1 



When you have answers to these questions, you will be in a much better position to choose 
the right structure for your group. 



Tip: Keeping It Legal - E Ai Ki Te Ture has a very useful Getting Started fact sheet to help 
your organisation decide on an appropriate structure. Visit: http://keepingitlegal.net.nz/ 
learn-more/getting-started/ 



Community Resource Kit 



Section 3: Organisational structures 2 



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Only for MDori land 
owners or shareholders 
of corporations 


Protection of land from 
alienation 

Strong shareholder 
participation 


Not suitable for 
commercial enterprises 

Can be cumbersome 
to operate due to 
the wide shareholder 
participation 


Good for co-operatives, 
generally with a 
business/ commercial 
purpose (such as craft 
or workers' co-ops) 


Profits can be 
distributed to members 
(unless the group has 
charitable status) 


Not suitable for broad 
membership- based 
organisations 

Because they are 
quite rare, many 
accounting and legal 
professionals may not 
fully understand how 
they work 


Good for groups with 
a commercial purpose 
(such as a community 
business) 


Easy to set up 

Useful where the group 
has some commercial 
activities (such as a 
community enterprise) 

Keeps control in a few 
hands (the directors), 
while enjoying limited 
liability 

Often easier to obtain 
loans (but this may 
require personal 
guarantees from 
directors) 


Generally too 
complex for 
charitable community 
organisations 

Reporting requirements 
are more complex than 
other structures 

Directors may be liable 
if they fail to meet their 
obligations 


Not-for-profit 
organisations with a 
charitable purpose - 
especially where the 
initial trustees want to 
maintain control and 
succession 


Keeps control in a few 
hands (the trustees), 
while enjoying limited 
liability. This provides 
longer-term stability (but 
may lead to staleness/ 
stagnation) 


Control is with the 
trustees - there is no 
accountability to a 
wider membership base 

Trustee succession 
planning is usually by 
director appointment 

The distinctions 
between the different 
types of charitable 
trusts can be confusing 


Good for most not- 
for-profit groups with a 
charitable purpose 


Provides a better 
framework for 
governance/ 
management than 
incorporated societies 
(especially in larger, 
more complex groups) 

Only requires 
five individuals to 
incorporate 

Charitable status 
and limited liability of 
members/trust board 


Groups need to have a 
charitable purpose and 
cannot distribute profits 
to members 

The distinctions 
between the different 
types of charitable 
trusts can be confusing 


Not-for-profit groups 
and clubs - particularly 
membership or 
volunteer-based groups 
- especially smaller 
groups with strong 
community links 


Democratic, 
membership-based 
organisation structure 

Easy, efficient 
structure for non- 
profit organisations 
(particularly smaller 
ones) 


Finding (and 
maintaining) 15 
members may be a 
problem 

Risk of committees 
being overturned 
annually (at AGM) which 
may lead to short-term 
decision-making and 
limited succession 
planning (note this can 
be addressed in the 
rules) 

Not suitable for groups 
with a commercial 
purpose 


One-off situations, 
informal groups and 
clubs 


No external reporting 
requirements (unless 
the group is seeking tax 
benefits or charitable 
status) 

Informal structure, with 
few rules or restrictions 


Members may be liable 
for the debts of the 
group 

Not a separate legal 
entity 

Not recommended for 
on-going groups, where 
groups are employing 
staff or receiving 
external funding 


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Unincorporated groups 



An unincorporated group can be any group of people that gets together for some purpose, 
whether it is to change something in the community, provide some service, work on a 
project or simply to socialise. Nearly all groups start off informally, without a highly organised 
structure or any legal standing, and small groups may decide they don't need to formalise 
these things. In New Zealand, the largest proportion of not-for-profit institutions (61 per 
cent) are unincorporated societies . 

Key features 

Typically, an unincorporated group will have some key features: 

no separate legal identity or legal status 

• members may be able to come and go at will 

there may be a written or oral contract between the members 

• the start date will be the date on which the group was formed. 

Rules and processes 

As a matter of good practice, an unincorporated group should record its rules and 
processes for managing the group's affairs and making decisions. These rules could be 
based on the group's past practice and should be agreed upon by all your members. 
Although there is no legal requirement for writing down your rules, it will help your group 
operate smoothly and will also be useful if any disputes arise, especially if there are assets 
or money involved. 

Advantages 

There are some advantages of a group being unincorporated, including: 

few legal or administrative requirements 
flexible structure, with few rules or restrictions 

Limitations 

Some limitations of unincorporated status include: 

membership status is uncertain 

members may be personally liable for debts and other obligations 

unincorporated groups are not separate legal entities so they have no ongoing existence 

that is independent of their members and no legal standing to enter into contracts, own 

property or borrow money 

there is no legal requirement to have rules, so resolving disputes can be problematic. 



Tip: Unincorporated status tends to suit groups that are social in nature, or groups 
that have formed to address an urgent, short-term issue. It may be easier and cheaper 
to remain unincorporated, however, members should be aware that everyone in the 
group could be personally liable for any potential debts. To see if it is the right structure 
for your group, fill in Keeping it Legal's Checklist for an unincorporated group: http:// 



Community Resource Kit 



Section 3: Organisational structures 5 



Umbrella groups 

Another way for groups to work successfully in their communities without incorporating 
themselves is by going under the wing of an umbrella group. An umbrella group is usually 
a larger organisation that is an incorporated body and can provide resources and backing 
to smaller groups that work in similar areas and/or share similar goals. There are many 
umbrella organisations in New Zealand at national and local levels, such as: 

NZ Council of Social Services (and the various local councils ) 
ANGOA (Association of Non-Government Organisations of Aotearoa) 
New Zealand Federation of Voluntary Welfare Organisations (NZVWO) 
Volunteering NZ 

Working with an umbrella organisation allows a smaller group to get on with projects without 
having to take on the costs and responsibilities of being incorporated. It can help with 
obtaining funding and the umbrella group may also receive and pass on any money to a 
group within its structure, possibly charging a handling or administration fee for its services. 

Advantages 

By using an umbrella organisation: 

you can make use of the skills and resources of the umbrella group 

• you have no long-term commitment 
you may save on administration costs 

• as a new group you can secure a small amount of funding 
you are working in partnership in the community. 

Limitations 

your eligibility for grants may be limited 

employment arrangements and responsibilities can be confusing when the group under the 

umbrella wants to employ someone 

the umbrella group requires full disclosure of financial information 

individual liability may not be limited, so individuals in your group may not be protected from 

being sued 

problems can arise with how assets are dealt with 



Tip: Make sure the umbrella group is a legal entity and get a written agreement to 
ensure the relationship is clear. Both parties should seek legal advice before signing any 
agreement between them. For more information visit: http://keepingitlegal.net.nz/learn- 
more/unincorporated-groups . 



Community Resource Kit 



Section 3: Organisational structures 6 



Formal organisational structures 

When a group chooses to formalise its organisational structure, it becomes a legal 
charitable (or not-for-profit) organisation. The two most common formal structures for New 
Zealand community groups are incorporated societies and charitable trusts. While the two 
formal set-ups have some differences, both of them establish a group as a legal entity that 
is separate from the people who formed or make up the group. 

There are two ways an organisation can be incorporated: 

• a society may incorporate under the Incorporated Societies Act 1908 

a charitable society or trust may incorporate under the Charitable Trusts Act 1957. 

Advantages 

There are many advantages to having a formal organisational structure, including: 

there's a formal document (deed/constitution) setting out what the group does and how it 

will do it 

access to a wider range of grants, donations, contracts and loans 

better credibility and accountability 

the possibility of applying for charitable status, and so benefiting from exemptions from 

income tax, resident withholding tax and gift duty 

prevention of people being personally liable for the group's debts. 

Benefits of incorporation 
Separate legal identity 

As a separate legal entity, an incorporated group can: 

execute documents in its own name 
enter into contracts in its own name, subject to its own rules 
buy, sell, own, lease and rent property, subject to its own rules 
borrow money and give securities, subject to its own rules 

• sue and be sued in its own name. 

Perpetual succession 

An incorporated group has 'perpetual succession', which means the group continues to 
exist even if the membership of the group changes (as long as it complies with the law 
and is not wound up). This permanence gives the group further legal recognition and 
makes it more creditable, which will help when seeking grants or donations or entering into 
contracts. 

Limited liability 

The members of an incorporated group benefit from gaining limited liability. This means that 
when the group incurs any debts or other legal liabilities, it can usually only be sued in its 
own name, and its members are not usually personally responsible. However, members can 
be held personally liable when, for instance, they don't make it clear to third parties that any 
liability the member incurs is actually for the group. 



Community Resource Kit Section 3: Organisational structures 7 



Choosing the right structure 

If you are thinking about formalising the structure of your group, you will already have a 
clear purpose and vision for your organisation. You also need to take into account the type 
of project and the role the organisation plays in the community e.g. the organisation may 
want to act as a facilitator and develop local projects; it may support other groups and 
projects; or it may undertake trading activities, either for itself or for the community. Each 
type of structure has advantages and disadvantages that will suit some types of groups and 
projects better than others. The information here provides some general guidelines about 
the different organisational structures, but it's recommended that you look at more technical 
and legal information such as: 

Keeping it Legal - E Ai Ki Te Ture - http://keepingitlegal.net.nz/check/legal-form/ 

Societies and Trusts Online - http://www.societies.govt.nz/cms/incorporated-societies/ 

starting-an-incorporated-society 

CommunityNet Aotearoa's Getting Started: Legal Structures How-to guide - http://www. 

community, net. nz/how-toguides/legalstructures/ 



Tip: Getting the advice of a lawyer and/or an accountant will help you decide which 
organisational structure best suits your needs. 



Incorporated societies 



The incorporated society is the second most popular organisational structure for New 
Zealand not-for-profit organisations, accounting for almost a quarter of all groups . 
An incorporated society is set up under the Incorporated Societies Act 1 908. Once 
incorporated, it means a society can legally run its affairs as though it were an individual 
person. The New Zealand Companies Office - which is part of the Ministry of Economic 
Development - is responsible for administering the Societies and Trusts Register that 
registers incorporated societies. 

Key features 

An incorporated society: 

has a set of rules that governs the way the organisation operates 

has a minimum of 1 5 individuals or five corporate bodies such as other societies, charitable 

trusts or companies (each corporate body counts as three individuals), or a mix of both 

can make profits and employ people, but may not distribute profits to members 

has its income taxed although it may be eligible for a range of tax exemptions. 

Rules 

The rules (or constitution) of an organisation is its most important document, as it sets out 
the vision or purpose for which the organisation is being set up. It is the place to embed 
your kaupapa, or your guiding principles and values. 



Community Resource Kit 



Section 3: Organisational structures 8 



Section 6 of the Incorporated Societies Act 1908 sets out the minimum requirements that 
must be included in an incorporated society's rules. These are: 

• name 

objects (or purposes) 

• how people become members 
how membership is terminated 

how rules are to be altered, added to, or rescinded 

how to give notice of, and run, general meetings as well as voting methods 

appointment of officers 

the control and use of the common seal 

the control and investment of funds 

• the powers (if any) of the society to borrow money 

the disposition of property in the event of the society being put into liquidation. 



Tip: As long as these minimum requirements are included, the group is free to include 
additional rules if it wishes. (More detail is given on each of these minimum requirements 
next.) 



Minimum requirements 
Name 

There are some restrictions on the name that you can use. The society's name must end 
with the word 'Incorporated' and it can't be the same as (or deceptively similar to) that of 
any other society, company or organisation. 



Tip: If you want to register with the Charities Commission, you need to have a name that 
the Commission believes is not offensive or likely to mislead the public. 



Objects 

The objects of a society is its purpose. The objects can be specific or quite general but they 
must be lawful and should include the society's main activities, activities it would like to do 
in the future, and a general statement allowing it to do anything else to further its aims. It's 
important that they reflect your mission, but are flexible enough to adapt to changes in the 
future. Note that any changes to your objects need to be approved by two-thirds majority of 
the members at a general meeting, and any change in the future may affect your charitable 
status (if this applies). 



Community Resource Kit 



Section 3: Organisational structures 9 



Membership 

The rules must set out: 

who can be a member 
• whether there are different types of members e.g. full members who are actively involved 
or associate members who are less involved (different types of members can also have 
different voting rights) 
how many people can become members 
how they become members e.g. apply in writing 
how membership is ended, either by the individual or the society itself. 

You may also wish to include a rule to allow you to charge membership fees. And you must 
keep a list or register of members. 

Meetings 

In addition to the mandatory rules about general meetings, you may also have rules relating 
to annual general meetings (AGMs or hui-a-tau) and special general meetings (SGMs) that 
also involve all the members. 

General meetings 

These provide a way for the membership as a whole to keep in touch. There is no set 
number of meetings that must be held but the rules may state a minimum. In a small 
society, general meetings are likely to be held regularly e.g. every month. In a larger society, 
where a committee does most of the work, these meetings may be held less often. 

Annual general meetings (AGMs) 

These are held once a year. You may want to state in your rules that it must be held within 
14 or 16 months of the previous AGM. The AGM will elect the office holders and any 
committee, consider the financial statements, review the year's activities and plan for the 
year ahead. 

Special general meetings (SGMs) 

These may be called outside the normal general meeting times to discuss urgent business 
or to consider an important issue such as an amendment to the rules. The rules should set 
out how members can request a SGM (e.g. by giving written notice to the secretary) and 
whose job it is to organise it (e.g. the secretary). 

Notice of meetings 

Your rules should set out how notices of meetings are to be given to members. In the case 
of an SGM, the reason for calling the meeting should be included in the notice. Your rules 
must also state when the notice is to be received e.g. 14 days before the meeting. 

Quorum 

A quorum is a minimum number of members required to attend before a meeting can begin 
or continue. If the quorum is not reached, the meeting cannot be held. The number of the 
quorum will depend on the size and circumstances of your group. It shouldn't be set too 
high or you may have difficulty holding a meeting. Nor should it be set too low, to avoid the 
risk of a small group hijacking the organisation. 



Community Resource Kit Section 3: Organisational structures 10 



Running meetings 

Your rules must state who will run the meetings. Any additional details of how you want to 
organise your meetings can be added. 

Decision-making 

Decisions can be made either by consensus or by voting. The rules must set out the voting 
procedure. They should cover whether all or only certain types of members can vote. You 
will need to state how a vote is to be held, e.g. by voices, by show of hands, or in writing. 
You will also need to state how a decision is passed and how many members need to 
be present. You will have to decide if you want all votes to be exercised in person at the 
meeting, or whether you will allow postal votes or proxy voting (where someone can vote 
on behalf of another member). A proxy vote should be in writing and signed by the member 
who cannot attend. 

Committees 

You don't have to have a committee as your group can be run solely by general meetings. 
However, if the group has more than 20 people, you will find a committee an advantage as 
it can streamline the decision-making process and you can also establish sub -committees 
to attend to particular projects or tasks. The committee will be appointed or elected at the 
AGM. Your rules should set out: 

the number of committee members (there is no maximum or minimum required) 

• who is to convene the committee e.g. the society's chairperson or rotated amongst 
members 

• how often the committee is to meet during the year 

how decisions are made and voted on at committee meetings 
whether the committee can co-opt extra members 
whether the committee can form sub-committees. 



Tip: Your group should decide how wide the committee's powers will be - e.g. whether 
it has the power to borrow money or the power to co-opt non-members to form 
subcommittees - but it's important to allow the committee to function without the need 
to call constant meetings. 



Officers of the society 

Groups do not have to appoint officers. Some groups choose to operate as a collective, 
sharing tasks and responsibilities, sometimes on a rotating basis among members. It is also 
possible to draw on the assistance of people outside the group. If officers are appointed, 
there are usually three - the chairperson, the secretary and the treasurer. 



Tip: If you want to apply to register under the Charities Act 2005, officers (all trustees 
and all members of a board or governing body) will need to meet the qualification 
requirements of the Act. For more details, visit: http://www.charities.govt.nz/ 



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Section 3: Organisational structures 1 1 



Chairperson 

The chairperson convenes meetings of the society and any committee it may elect, and 
ensures that the rules of the society are followed. The chairperson may also take on a 
leadership role in the activities and management of the group. 

Secretary 

The key roles of the secretary are: 

to keep a register of members 

• to prepare notices for general meetings 
to keep minutes of all meetings 

to keep the official stamp or common seal of the society in safe-keeping 
to handle incoming and outgoing correspondence. 

Treasurer 

The role of the treasurer (either alone or in association with an in-house financial 
administrator or outside accountant) is: 

to keep proper financial records 

to bank all money received by the society 

• to pay all accounts 

to prepare annual accounts and file them with the Registrar of Incorporated Societies 
to look after any taxation requirements e.g. PAYE and GST. 



Tip: For further details on the role of the chairperson, secretary and treasurer see Section 
4 - Governance. 



Other officers 

Other officers of the society may include: a patron or patrons, a fundraising co-ordinator, a 
publicity co-ordinator, and an education co-ordinator. 

The common seal 

A common seal is usually a rubber stamp that includes the name of the society and the 
words 'common seal'. All societies must adopt a common seal on incorporation and the 
society's rules will set out when it will be used and how. Generally, it is used on legal 
documents and contracts that the society enters into. 



Tip: Contact a commercial stationer for information about ordering a seal. 



Finances 

Your rules must state: 

that proper accounts will be kept 
• who will control your funds e.g. sign cheques and make withdrawals (this will usually be your 
treasurer and one or two other people appointed by the committee) 
that all funds are to be banked into the society's bank account 
that any surplus funds are to be placed in secure investments. 



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Financial statements must be prepared and presented to the AGM each year. These must 
include: 

your income and expenditure 
your assets and liabilities 
• any mortgages, charges or securities over any of your property. 

A copy of the financial statements must be sent to the Registrar of Incorporated Societies 
and an officer or solicitor of the society must certify that the statements have been approved 
by the members of the society at a general meeting. Financial statements only have to be 
audited if it is set out in the rules of the society. 



Tip: It's best not to make auditing a requirement in your rules as you can still appoint an 
auditor if need be, e.g. when it's required by a funding body. 



Powers 

The powers can be as wide or narrow as the group requires, but if you plan to borrow 
money, how it can be borrowed must be included in the rules. The rules should also cover 
the powers: 

to invest money 

to lease, buy or sell property 

to employ staff 

to sign contracts. 

Surplus assets 

Your rules must state what will happen to any assets after you've paid all your debts. You 
may want to distribute any surplus assets to another society or trust with similar aims to 
your own. 



Tip: If the society is registered with the Charities Commission, any surplus assets will 
need to be distributed for charitable purposes. 



Final tips on rules 

Include your kaupapa, your mission, guiding principles and values in your constitution. This 

isn't required by law, but it provides a public statement about your organisation and what 

you stand for. 

It's useful to have a general clause stating how any dispute between members or between 

members and the committee will be resolved e.g. by mediation. Don't be too prescriptive in 

the constitution - your policies and procedures will set out the detail. 

Charitable status - depending on the reason for your group, you may want to register as a 

charity with the Charities Commission and obtain the tax and other benefits of registration. 

The main things to consider are: 

- the purposes need to be charitable (see below) 

- no member can obtain any personal financial gain (pecuniary profit) from being a member 
of the group (although a member can be paid for work done as long as it is no more than 
a reasonable 'open market' value) 

- on winding up, any surplus must be distributed to other charitable organisations 

- alterations to the constitution cannot be made that would affect the charitable status. 



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Section 3: Organisational structures 13 



Tip: To get some ideas, look at the sample set of rules or the rules of other incorporated 
societies available at Societies and Trusts Online - http://www.societies.govt.nz/cms/ 
incorporated-societies/rules-of-incorporated-societies 

For further details or guidance on developing your rules, visit: Keeping it Legal - E Ai Ki 



Process for setting up an incorporated society 

The following shows the process for setting up an incorporated society. 

1 . Your group wants to set up an incorporated society. 

2. Meet and: 

a. decide on a name of the group 

b. decide the overall mission, purpose and values of the organisation (this starts to 
develop your rules or constitution). 

Refer to Section 1 - Getting Started, and Section 2 - Planning, for more information on 
developing your mission and strategic planning. 

3. Go to Societies and Trusts Online website (http://www.societies.govt.nz ) and: 

a. check the name is available 

b. review rules of other incorporated societies and the sample set of rules 

c. download application form or ring 0508 762 438 for forms to be posted out. 

4. Draft a set of rules (this is usually done by a small group, with the draft taken to the 
larger group in the next step). 

5. Call a meeting of at least 1 5 people (or equivalent corporate bodies) willing to be the 
founding members. At this meeting your group needs to: 

a. approve the rules 

b. complete the application for incorporation documents 

c. appoint a chairperson, secretary, treasurer and management committee 

d. set a membership fee (or agree not to have one). 

6. Send the following completed documents back to the Companies Office: 

a. the application for incorporation document 

b. a copy of your rules 

c. the certification form for the rules 

d. $1 00 lodgement fee. 

7. The Companies Office informs your group that it is now an incorporated society and 
sends you a certificate. 



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Section 3: Organisational structures 14 



8. To maintain your registration you will need to file the following documents with the 
Registrar of Incorporated Societies: 

a. annual financial statement 

b. rule changes (including name changes) 

c. address changes. 

If you are registered with the Charities Commission, you will need to notify changes and 
file an annual return (including annual accounts) with the Charities Commission instead 
of the Registrar of Incorporated Societies. 



Tip: If your organisation has a charitable purpose, registering with the Charities 
Commission will entitle you to an exemption from income tax and resident withholding 
tax. If you want to apply for registration under the Charities Act 2005, you need to meet 
their requirements for registration: 

a) the name needs to be suitable i.e. not offensive or liable to mislead the public 

b) the purposes need to be charitable 

c) the officers need to be qualified under the terms of the Act. 

You will also need to fill out an application form, an Officer Certification Form (one copy 
for each of your officers), and send in a copy of your rules, including all amendments. For 
more details visit: http://www.charities.govt.nz 



Charitable trusts 

A charitable trust is the other main legal structure that community groups may consider. 
Fifteen per cent of New Zealand not-for-profit institutions are charitable trusts . 

There are three main types of charitable trust: 

Unincorporated charitable trust - this may be used when someone sets up a trust to 
provide funds for a particular cause. Like any unincorporated group, there are limitations to 
this type of trust and it's not recommended for an ongoing community group. 
Registered charitable trust (trust-based) - in this model, two or more trustees can set up 
a trust for a charitable purpose. This is useful if the initial trustees want to retain control of 
the organisation, including appointing further trustees. 

Registered charitable trust (society-based) - in this model, an established group (or 
a minimum of five people) can register a society as a charitable trust board under the 
Charitable Trusts Act 1957 as long as it meets the requirements of being charitable. On 
incorporation, the members of the society become members of the board. 

The process of registering a trust or society as a charitable trust board under the Charitable 
Trusts Act 1957 starts with applying to the Registrar of Incorporated Societies at the 
Companies Office (see the flowchart on setting up a registered charitable trust). 



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Charitable purposes 

Trusts or societies registered as charitable trust boards must act exclusively or principally for 
charitable purposes, which are: 

a) the advancement of education 

b) the advancement of religion 

c) the relief of poverty, sickness or disability 

d) any other purpose that benefits the community. 

Note that a charitable organisation whose purpose falls under (d) must also be able to 
demonstrate 'public benefit'. This means the organisation must show that its purposes can 
produce a benefit that is recognised by law as beneficial, and that this benefit is available to 
the public or a sufficient section of the public. 

Key features 

A charitable trust board: 

is set up under the Charitable Trusts Act 1957 

has a board of at least two trustees (if it's a trust) or five members (if it's a society) to make 
decisions 

must have charitable aims - i.e. not be for private profit 

will have a trust deed (if it's a trust) or set of rules or constitution (if it's a society) under which 
it operates. A copy of these must be lodged with the Registrar of Incorporated Societies at 
the time of applying for registration 

once registered and incorporated, has a separate legal identity distinct from its members or 
trustees 
• must be registered with the Charities Commission to obtain or keep charitable tax-exempt 
status. 

Rules 

As with incorporated societies, the rules (or trust deed or constitution) is a charitable trust's 
most important document as it sets out the organisation's purpose and sets the rules under 
which it must operate. The trust deed sets out the rules of a trust-based charity and the 
constitution sets out the rules of a society-based charity. 

Rules checklist 

Unlike the Incorporated Societies Act 1908, the Charitable Trusts Act 1957 does not state 
what needs to be included in the rules. However, to ensure the trust or board operates 
smoothly, it's good practice to include the following items in the trust deed or constitution: 

The purposes of the trust. These need to be charitable and should refer to the mission of the 
organisation. 

The area of operation. In general, Inland Revenue requires that your activities are restricted 
to New Zealand in order to obtain donee status for tax purposes (i.e. so that people making 
a donation can claim a tax deduction). 
« The make-up of the board, including the number of trustees/board members, how they are 
appointed and how long they serve and how they can be removed. 
Whether trustees or members can be paid for their services - this is the 'pecuniary benefit' 
clause. You should specify that, if trustees or members are paid for their services, this may 
be no more than the market rate for the work done. 

Community Resource Kit Section 3: Organisational structures 16 



Board and, if applicable, general members' meetings. 

Decision-making, quorum numbers and notice of meetings. You need to be careful that you 

do not set the quorum too high - if there are a couple of vacancies on the trust/board, you 

may have difficulty obtaining a quorum. 

Board's finances. As with incorporated societies, the accounts do not need to be audited 

unless the rules state this. 

Powers of the board. In the case of a society these are likely to be the same as those for 

an incorporated society. In the case of a charitable trust, the trustees are given authority 

to carry out the aims, which can be very wide or quite narrow depending on what suits the 

group. 

Permission to alter the trust deed or rules. 



Tip: For more information on the legal details of establishing, incorporating and operating 
a charitable trust, and the distinction between the different types of charitable trust, visit: 

Societies and Trusts Online (http://www.societies.govt.nz/cms/charitable-trusts ) 

• Keeping it Legal - EAi Ki Te Ture (http://keepingitlegal.net.nz/learn-more/trusts/ ) 



Process for setting up a registered charitable trust 

The following flowchart shows the process for setting up a registered charitable trust. 



1 . Your group wants to set up a registered charitable trust. 

2. Meet and: 

a) decide whether it will be society- or trust-based 

b) decide on a name 

c) decide who will be the trustees or board members and how the trust or society 
will operate 

d) draft a trust deed or constitution that includes your aims, powers and rules of the 
trust or board. 

3. Go to Societies and Trusts Online website (http://www.societies.govt.nz) and: 

a) check the name is available 

b) review rules of other charitable trusts 

c) download application form or ring 0508 762 438 for forms to be posted out. 

4. Call a meeting of the trust board. At this meeting your board or trustees need to: 

a) approve the trust deed (trust-based) or rules (society-based) 

b) approve the application for incorporation documents 

c) complete the declaration form 

d) complete the registered office form 

e) elect a secretary, treasurer and management committee (for a society). 

5. Send the completed documents back to the Companies Office. 



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6. The Companies Office informs your group that it is now a registered charitable trust 
and sends you a certificate. 

7. To maintain your registration you will need to file the following documents with the 
Registrar of Incorporated Societies: 

a) rule changes (including name changes) 

b) address changes. 

If you are registered with the Charities Commission, you will need to notify changes and 
file an annual return (including annual accounts) with the Commission. 



Tip: By registering with the Charities Commission, an organisation with a charitable 
purpose can expect an exemption from income tax and resident withholding tax. If 
you want to apply for registration under the Charities Act 2005, you need to meet their 
requirements for registration: 

d) the name needs to be suitable i.e. not offensive or liable to mislead the public 

e) the purposes need to be charitable 

f) the officers need to be qualified under the terms of the Act. 

You will also need to fill out an application form, an Officer Certification Form (one copy 
for each of your officers), and send in a copy of your rules, including all amendments. For 
more details visit: http://www.charities.govt.nz/ 



Other organisational structures 



There are a number of less common organisational structures that community groups may 
choose to use, such as companies, industrial and provident societies and Maori land trusts. 
These structures can provide a better fit with a group's purpose and circumstances than the 
structures previously discussed. (For a comparative summary, see the chart 'Characteristics 
of Different Legal Structures' at the start of this section.) 

Companies 

Most larger community organisations will be either charitable trusts or incorporated 
societies. However, for some organisations, registering as a company may provide a better 
structure under which to operate. Companies are best suited to organisations that have a 
commercial aspect to them, such as a community-owned business. Companies can register 
as charitable entities with the Charities Commission - provided they meet the required 
conditions (visit: http://www.charities.govt.nz ). 



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Some common characteristics of companies are: 

> they have directors appointed by individual members and/or other community groups 
shareholders are not personally liable beyond the value of their shareholding unless they give 
personal guarantees 
directors have limited liability 

to be charitable, they will have charitable or other community purposes stated in the 
constitution along with other special provisions restricting personal benefit to those involved. 



Tip: For more in-depth information on companies visit: 

Keeping it Legal - E Ai Ki Te Ture - http://keepingitlegal.net.nz/learn-more/ 

companies/ 

The Companies Office - http://www.business.govt.nz/companies/learn-about/ 

companies/ 



Co-operative companies 

A co-operative company is one established for the purpose of allowing its owners 
to carry on business on a mutual basis. This is another option available, however, it's 
a specialist form of structure that is more appropriate for commercial entities, such as 
producer co-operatives. 



Tip: For more information on co-operative companies visit: http://www.business.govt.nz/ 
companies/learn-about/other-entities/more-entities/co-operative-organisations 



Industrial and provident societies 

Relatively few Industrial and Provident Societies (IPS) are registered these days. They were 
more common in the 1970s when co-operative businesses were popular. Taxi co-operatives 
are examples of this legal structure, which may be worth considering in some situations, 
such as when setting up a work, or arts marketing co-operative. 



Tip: If you intend registering as a company or IPS, you should seek legal advice first. 
For more information on companies and other organisational structures visit The 
Companies Office: http://www.companies.govt.nz 



Maori land trusts 

There are five different types of trusts described in Te Ture Whenua Maori Act 1 993/Maori 
Land Act 1993: 

• POtea trusts 
Whanau trusts 
Ahu whenua trusts 
Whenua tdpu trusts 
Kai tiaki trusts. 



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Maori land trusts can only be set up by the owners of Maori land or their trustees. They 
are set up under a trust deed and registered with the Maori Land Court (Te Kooti Whenua 
Maori), with the primary goal of retaining Maori land in Maori ownership. Whanau and Putea 
trusts are the types that are most commonly used. 

Putea trusts 

These are designed to deal with uneconomical smaller share interests within a block or 
within various blocks of land. Te Ture Whenua Maori Act 1993 requires that the shares, and 
any income they produce, be held for Maori community purposes. 

Whanau trusts 

These are designed to hold and manage beneficial interests or shares in Maori land or 
general land owned by Maori. They enable whanau members to bring together all of 
their interests or shares in land, for the benefit or advancement of the whanau and the 
descendents of the tipuna (living or deceased ancestors) named in the trust order. 

Ahu whenua trusts 

These are land administration trusts designed to manage whole blocks of land administered 
by the Maori Trustee. They are often used for commercial operations and are the choice for 
many farming operations over Maori freehold land. 

Whenua topu trusts 

These are designed to manage land belonging to an iwi or hapu. They share many of the 
features of Ahu whenua trusts and are subject to the same restrictions. 

Kai tiaki trusts 

These are designed to protect minors or persons under disability who are unable to manage 
their affairs. They can be constituted over the person's land interests and personal property. 



Tip: Te Puni Kokiri's Effective Governance website has more detailed information on these 
trusts and other structures used by Maori organisations: http://governance.tpk.govt.nz/ 
why/types.aspx 

Information on Maori Land Trusts is also available from Maori Land Court Offices 
or from the Ministry of Justice website: http://www.justice.govt.nz/courts/ 
maori-land-court 



Charities Commission 

Functions 

The Charities Commission (referred to from now on as the Commission) was established on 
1 July 2005 by the Charities Act 2005 (from now on referred to as the Charities Act). The 
Commission and the Charities Act are monitored by the Department of Internal Affairs. 

The Commission has two main functions: 



to register and monitor charities 

to provide education and support to the charitable sector. 



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Registration 

The Commission considers applications for registration from any organisation that meets its 
criteria. The organisation does not have to be incorporated. The main criteria are: 

• the name needs to be suitable i.e. not offensive or liable to mislead the public 
the purposes need to be charitable 

• the officers need to be qualified under the terms of the Charities Act. 

Name 

If an organisation is already incorporated (e.g. an incorporated society or registered 
charitable trust), the name of the organisation is the same name under which it was 
incorporated. Otherwise, the Commission decides if the name is offensive or liable to 
mislead the public. 

Charitable purposes 

Key criteria for charitable status are: 

income derived by the organisation is for charitable purposes i.e. the relief of poverty, the 
advancement of education, the advancement of religion or any other matters that are 
beneficial to the community 

• the organisation is established and maintained for charitable purposes and not for the 
private monetary gain of any individual. 

Qualification of officers 

Officers (all trustees and all members of a board or governing body) will need to meet 
the qualification requirements of the Charities Act. The disqualifying factors are set out in 
section 16 of the Act, and include being an undischarged bankrupt, being under 16 years of 
age, having a conviction for dishonesty within the last seven years, as well as other criteria. 



Tip: For information on what charities need to do to register and for online assistance 
with the registration process, visit: http://www.charities.govt.nz . It's free to 
register but there will be ongoing costs for filing your annual returns if your charity 
has a gross income of $1 0,000 or more. The fees are $50 for an online return and $75 for 
a paper return. 



Tax exemptions 

Although registration with the Commission is voluntary, charitable organisations that want to 
obtain charitable tax-exempt status must be registered with the Commission. 

There are further requirements in the tax legislation that mean following registration, charities 
will need to consider whether they meet the requirements for the tax exemptions. In most 
cases, charities with non-business income only (e.g. investment income such as interest 
and dividends) that are registered under the Charities Act will qualify for the exemptions. If a 
charity has business income, it will need to consider some further criteria. 

On registration with the Commission, charities will receive correspondence from the 
Commission, notifying them that their application has been successful, and information from 
Inland Revenue to assist them in determining their tax position. 



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The Commission will advise Inland Revenue of a chanty's registration so there may be 
no need to do so separately. Also, registered charities don't need to apply to Inland 
Revenue for donee status. Donee status means that individuals can claim a tax credit, and 
companies and Maori authorities can claim a deduction, for charitable donations from the 
public. Inland Revenue will determine whether your organisation qualifies for donee status 
by using the information provided on your application to register as a charity. 



Tip: For further general information on the Charities Commission and the registration 
process, visit the Commission's website - http://www.charities.govt.nz . 

For more information on the various tax exemptions available to charitable organisations, 
visit Inland Revenue's website - http://www.ird.govt.nz/charitable-organisations/ 



Dissolution and winding up 



Dissolution is the act of ending an organisation's existence as a legal entity. There are many 
reasons why an organisation might be dissolved. It could be that the group has achieved 
its goals, or it may be necessary because the organisation is unable to continue due to 
insufficient membership or financial difficulties. 

Liquidation (or winding up) is the process that brings an organisation's activities to an end. 
Liquidation begins when a liquidator is appointed and generally involves selling ('realising') 
the organisation's assets, paying its liabilities and distributing any surplus in accordance 
with its rules. The process of liquidation differs depending on whether the incorporated 
organisation is an incorporated society, a charitable trust board or a company. 

Incorporated societies 

Many incorporated societies will reach a point when they can no longer operate as a society 
e.g. membership numbers have dropped or it's in financial difficulty. An incorporated society 
can be put into liquidation in one of three ways: 

1 . Voluntarily by the members resolving at a general meeting (by simple majority) to do 
so and to appoint a liquidator. A second general meeting must be held to confirm this 
previous resolution. 

2. By the Registrar of Incorporated Societies issuing a notice dissolving the society if he 
or she believes that the society is no longer operating, e.g. if the society fails to send 
in a copy of its annual financial statements. At the end of liquidation, the Registrar will 
remove the society from the Register and end its life as a separate legal entity. 

3. By the High Court, on receipt of an application to do so from the society itself, a 
member, a creditor of the society, or the Registrar of Incorporated Societies. 

Once a society is in liquidation, the activities of the society are stopped, debts are paid, and 
any assets are distributed in accordance with the rules. The proceeds from the society's 
assets are collected and distributed to its members (unless the rules state otherwise). If the 
incorporated society has charitable status, any surplus assets must be directed to other 
charitable organisations within New Zealand that have similar aims. 



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Charitable trusts 

A charitable trust may be put into liquidation in one of two ways: 

1 . Voluntarily by the trustees or members who pass a resolution to that effect at a general 
meeting and confirmed at a second general meeting held specifically to consider 
winding up. 

2. By the High Court, on receipt of an application to do so from the board itself, a board 
member, the Attorney-General, a creditor of the board, the Registrar of Incorporated 
Societies, or any other person whom the Court permits. 

Under Parts 1 6 and 1 7 of the Companies Act 1 993, the liquidation of a trust board is 
the same as that for a company. If there is any surplus after paying debts, this must be 
distributed to another charitable organisation in New Zealand. On liquidation, the trustees or 
officers of charitable trust boards may be personally liable in certain situations, e.g. if proper 
accounting records have not been kept. 

Companies 

A company may be put into liquidation in one of two ways: 

1 . Voluntarily, by the voting shareholders or the company's board. 

2. By the High Court, on receipt of an application to do so from the company, a director, 
a shareholder or other entitled person, a creditor of the company, or the Registrar of 
Companies. 

Liquidation of a company is when it ceases to operate or becomes bankrupt. The 
company's assets are sold and the proceeds are paid to the company's creditors with any 
surplus money distributed among the shareholders. If the company has charitable status, 
any surplus assets must be given to other charitable organisations within New Zealand that 
have similar aims. 

The company needs to write to Inland Revenue for confirmation that Inland Revenue has no 
objection to the company being struck off the New Zealand Companies Register. Once a 
written response is received from Inland Revenue advising they have no objection, the final 
effect of liquidation is that the company is removed from the companies register. 



Tip: For further information on liquidation, visit Societies and Trusts Online: 
http://www.societies.govt.nz , and the Companies office website: http://www.business. 
govt.nz/companies/learn-about/receivership-liquidation-administration . 



Where to go for more information 

Online resources 

1 . Societies and Trusts Online - www.societies.govt.nz . Information and resources for 
incorporated societies and charitable trusts, including the registration process. 

2. The Companies Office - www.business.govt.nz/companies. Information on companies, 
and dissolution and liquidation. 

3. Keeping it Legal - E Ai Ki Te Ture - http://keepingitlegal.net.nz . Information and handy 
checklists relating to the various legal forms of community organisations. 



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Section 3: Organisational structures 23 



4. Charities Commission - www.charities.govt.nz . Resources and guidance for 
organisations looking at registering under the Charities Act 2005. 

5. CommunityNet Aotearoa - see 'Getting Started: Legal Structures' How-to Guide - 
www.community.net.nz/how-toguides/legalstructures/ 

6. Inland Revenue Department - www.ird.govt.nz/charitable-organisations/ . Information 
on tax matters for charitable organisations. 

7. Te Puni Kokiri's Effective Governance - see 'Types of Maori organisations' - 
http://governance.tpk.govt.nz/why/types.aspx 

8. Maori Land Court, Ministry of Justice - www.justice.govt.nz/courts/maori-land-court 

9. New Zealand Legislation - www.legislation.govt.nz. For relevant legislation e.g. 
Companies Act 1993, Incorporated Societies Act 1908, Charitable Trusts Act 1957. 

10. SPARC Club Kit - see 'Starting a club' (www. spare. org. nz/en-nz/communities-and- 
clubs/Toolkit-for-Clubs/Starting-your-Club/ ). See also Legal structures and sample 
constitutions (http://www.sparc.org.nz/en-nz/our-partners/Developing-Capabilities/ 
Governance-Templates/ ) 

1 1 . PilchConnect (AUS) - see 'Getting Started' (www.pilch.org.au/gettingstarted/ ). 
Though the information and tools are for community organisations in Victoria, Australia, 
the general overview of organisational structures will be useful to NZ groups. 

Other resources 

1 . Inland Revenue's Charitable organisations IR255, Booklet and available online at: 
www.ird.govt.nz . 

2. Hutt City Council's Good Practice Guidelines - see 'Section 1: Building the 
foundations' - PDF file (40 KB) available for download from: www.huttcity.govt.nz/ 
Council-Services/Community-Development/Good-Practice-Guidelines/ . 



Community Resource Kit Section 3: Organisational structures 24